Many people are accountable to a daily routine, generally based on regular business hours. When the workday is done, many of them turn off their working mindset until the next workday starts. It’s a dependable routine, if not very exciting.
Others look for opportunities outside regular business hours. Maybe they don’t “turn off” their mindset when the workday’s through, or they believe they’re more positioned for success if there aren’t many other people around. Sometimes they just don’t need that much sleep and need something to do besides binge-watch television.
The stock market works with both of these mindsets. Regular business hours are when most transactions get done. A lot of that trading is easy to execute — sellers offer shares at posted prices; buyers snap them up for those prices. They may not make big numbers, but they don’t lose too much either.
Trading doesn’t stop after the market closes, though. That’s when many ambitious, risk-tolerant investors huddle together (metaphorically), looking to buy and sell securities for higher profits than they can get when everyone else is in the mix. It’s a precarious, even dangerous time — but potentially a lucrative one.
Welcome to the world of after-hours trading. Once a domain exclusively for institutional investors, it’s now a viable option for individual traders looking to maximize their earnings.
In this post, Gorilla Trades answers all of the questions you might have about the phenomenon: What is after-hours trading? What time does the stock market close? How does after-hours trading execute? Is after-hours trading something that can work for you?
After-hours trading isn’t a new phenomenon. In some ways, it’s always been around, if you include all of the late-night, back-room negotiations between Wall Street traders throughout the last century. But those trades weren’t executable until the stock market was open for business.
Now it’s possible to execute after-hours trades a bit closer to real-time than in the past. For most of the last 30 years or so, after-hours trading was reserved for institutional investors like banks and brokerages — large corporations that do business around the clock.
But after-hours trading didn’t become a big deal until fairly recently when individual people squeezed into the market. The rise of high-powered investors like Warren Buffett and Mark Cuban opened up after-hours trading to the public at large, and so did the rise of mutual funds.
More than anything else, electronic communications networks (ECNs) made after-hours trading available on a ground level for nearly everyone. With high-speed internet firmly in place everywhere trading happens, after-hours trading is growing in popularity.
Let’s look at a quick overview of the after-hours trading process.
Major stock exchanges — the NYSE and NASDAQ — are open for business between 9:30 a.m. and 4:00 p.m. Eastern. If you’re on the West Coast, you can already see how this could be a problem: Business starts at the ungodly hour of 6:30 a.m. and ends just after lunch.
Theoretically, after-hours trading can happen any other time. But unless you trade with foreign exchanges in different time zones, after-hours trading in the US is generally limited to two sessions:
- Pre-market — 8:00 a.m. to 9:30 a.m. Eastern
- Post-market — 4:00 p.m. to 8:00 p.m. Eastern
Before you hop on one of these sessions, your brokerage must allow you to engage in after-hours trading. Most of the best ones do. Some may have rules or restrictions in place or may charge a fee for after-hours trading. Check with your brokerage to learn its policy.
During regular business hours, traders can place buy and sell orders in two ways. One is by a market order, which is just like buying something at a retail outlet. The seller lists the current price, and the buyer picks it up for that price on the spot.
The other way is with a limit order. That’s when a trader names a price at which they want to buy or sell shares. When that limit order is matched with another offer, the order goes through.
In after-hours trading, only limit orders are allowed. That’s because the share prices tend to be very volatile after-hours — there are fewer traders around, which means there is less trading volume and fewer controls to manage price movement.
With a limit order, the trader is locked into a certain amount that they decide. That mitigates the risk of substantial loss. If the limit order doesn’t get matched before the end of the after-hours session, it’s canceled. No harm, no foul.
In essence, to make an after-hours trade, you enter the commodity you want to buy or sell and the price you want to buy or sell it at. If you use an online brokerage, it’s probably no different from how you trade stocks during regular business hours (except that you can’t place market orders).
Most companies release their quarterly earnings reports after the stock market closes. They do so to control price movement during the day.
If they post big earnings or losses during regular trading sessions, it could have a huge real-time effect on the share price — which could, in turn, mess with the rest of the market. They wait until the market’s closed to make big announcements.
Some investors, though, want to take advantage of those quarterly events — as well as other news items about their stocks apart from earnings season. After-hours trading helps them do that.
If, say, a company had a tremendously successful quarter that will boost its share price the next morning, an after-hour trader may issue a limit order to buy it at a certain price before it explodes. Conversely, if a company announces a bad quarter, an after-hours trader may try to unload their shares before the price plummets.
There’s no guarantee that a limit order will go through. But with the right strategy, after-hours trading can pay off.
After-hours trading isn’t for the faint-hearted. Because there’s less trading volume than during the day, the bid-ask spread — the difference between a commodity’s highest listed buying price and the lowest selling price — can be much greater.
That makes the off-hours market volatile. The mandatory use of limit orders also lessens liquidity in after-hours markets.
After-hours trading sessions are populated by professional stockbrokers, institutional brokerages, and traders who like to live on the edge. The competition’s much stiffer, in other words. It’s best to have a lot of experience under your belt before entering the world of after-hours trading.
There are tangible benefits to after-hours trading if you do it right. It’s convenient for those who can’t trade during the day. It also allows more flexibility for strategizing trades around real-time news events, like quarterly earnings reports.
After-hours trading can also expand and broaden your portfolio by giving you access to foreign exchanges and commodities that don’t trade on the stock exchange, like cryptocurrency. It can offer entry into traditional commodities at a lower price than you get during the day — or provide a more profitable exit point.
Gorilla Trades can help you profit from trading no matter what time of day you prefer. Our data-driven stock-picking formula has helped thousands of clients profit for over two decades. To get in on the action, sign up for a free trial.